Observations on the market action and the implications of the gold and silver markets.

Tuesday, November 09, 2004

Bonds and Spreads

The difference between the gold December futures contract and the gold June futures contract (a spread) has been climbing and is now up to 6.1. Bill Murphy at the Cafe, going over old data, says this is a similar situation to the gold take off back in '79. Contracts further out in time are being bid up more than normal probably because of inflation (rising prices type rather than the rising money supply type) fears.

This makes sense since another indication of this are the US government 30 bonds. They could very well have already topped out here and are busy forming a head and shoulders topping pattern. A shoulder, a head and a neckline have formed. A right hand shoulder is still needed. Then what is needed is for prices to go down below the neckline to confirm the head and shoulders topping pattern.
http://futures.tradingcharts.com/chart/TR/C4

Gold may start a serious run up after bonds have confirmed the head and shoulder pattern. We'll see how all this plays out. It's just something to be watching for. Speculation on my part. The other reason I don't expect an immediate explosion in gold is that it is at the top of its short term (about 2 months long) channel.

This could be why the HUI hasn't broken out into new high territory yet. It sure is trying, though. So, I'm looking for a big move up in the HUI, gold, silver about the same time as a big move down in the USD and bonds happens.